California City Disputes High Debt Burden Audit by State

The state auditor cites the city of Lodi’s debt burden as 112 percent, but the city manager says the audit miscalculated certain contracts as debt and believes the city has a 36 percent debt ratio, which puts it in the low-risk category.
by Oula Miqbel, Lodi News-Sentinel | November 1, 2019 AT 3:01 AM

(TNS) — The City of Lodi carries a higher debt burden than most other California cities, according to a recent report released by the California State Auditor’s office ranking the fiscal health of 471 cities across the state. However, Lodi City Manager Steve Schwabauer says that a closer look reveals that the city’s financial situation isn’t as dire as the audit suggests.

The auditor’s public dashboard contains information about a city’s revenues and expenditures related to its long-standing fiscal obligations, rating each city from high to low risk for fiscal distress.

Lodi was grouped in the high-risk category along with 94 other cities. According to the auditor’s assessment, Lodi is believed to be struggling under its debt burden, which could strain the city’s financial resources used to provide essential services to its residents, especially if revenues decline.

The date collected by the state auditor cites the city’s debt burden as 112% — meaning the city's revenues are substantially burdened by debt — for the 2016-17 fiscal year.

The state auditor’s office looked at 10 financial indicators — including reserves, revenue trends, and debt burden — to assess a city’s ability to pay its bills in the short and long term, and graded cities on those indicators from zero to 100 points.

Schwabauer believes the debt collection tool created by the state auditor does not accurately judge the city’s debt burden because the tool grouped the city’s long-term pay contracts with the Northern California Power Agency as debt. He noted that because the life of the contract between the city and the NCPA is over 30 years, the state auditor categorized the contract as a long-standing fiscal obligation, which put Lodi in the high-risk category.

“We have long-term pay contracts with NCPA for power plants that are categorized as debt. However, they are also operations costs because paying the debt also pays for the power provided through ownership of the power production assets,” Schwabauer said.

He added that if the tool had calculated the general fund revenues to its debt obligations, the debt calculation for the 2016-17 fiscal year would have a 36% debt ratio that would put Lodi in the low-risk category.

“The auditor's tool is a bit too blunt to take in all of the factors that may be unique to a particular city,” he said.

Among the 10 factors used to assess a city’s financial health, the state auditor ranked Lodi as a high risk for its future pension costs and its debt burden.

The auditor’s office said it worked with a seven-member advisory panel “made up of experts in municipal fiscal health” in coming up with its financial risk assessment.

Schwabauer said the 2017 data does not account for the measures the city has taken to address its unfunded pension obligations, including the creation of a pension stabilization fund that totaled around $10 million as of last June.

“We agree with the overall assessment that Lodi needs to be mindful of its CalPERS obligations. The City has been consistently clear that pension obligations are a concern and we will continue to work to address them,” he said.

©2019 the Lodi News-Sentinel (Lodi, Calif.). Distributed by Tribune Content Agency, LLC.